{"id":752,"date":"2012-03-15T04:45:37","date_gmt":"2012-03-15T10:45:37","guid":{"rendered":"http:\/\/www.sunlakesofarizona.com\/blog\/?p=752"},"modified":"2012-03-15T04:45:37","modified_gmt":"2012-03-15T10:45:37","slug":"economic-notes-for-the-week-of-march-5th","status":"publish","type":"post","link":"https:\/\/dev.sunlakesofarizona.com\/blog\/2012\/03\/economic-notes-for-the-week-of-march-5th\/","title":{"rendered":"Economic Notes for the Week of March 5th"},"content":{"rendered":"

The revised<\/strong> GDP<\/strong> number for the 4th Quarter 2011 as moved upward from an annualized 2.8% to 3.0%, which reflected better consumption and business investment\/capex spending.\u00a0 The one potential negative is, since inventory buildup played such a big role in last quarter\u2019s GDP, this quarter may not have the same effect as some of that inventory is drawn down and used.<\/p>\n

The Fed\u2019s Beige Book<\/strong>, which is an account of economic conditions containing anecdotes submitted by various Fed district banks, generally referred to economic activity expanding at a \u2018modest to moderate pace\u2019 for January and early February.\u00a0 This is similar to how conditions from late November and early December were described in the last book.\u00a0 Specifically, it mentioned that manufacturing activity was steadily increasing, which is in keeping with other reports, and that consumer spending has picked up\u2014including autos and residential real estate.\u00a0 Labor conditions also seem to be improving in many areas; however, wages remain tempered, which is watched closely due to potential inflation implications.\u00a0 Those inflation pressures appear to be in check.<\/p>\n

Speaking of the Fed<\/strong>, Ben Bernanke\u2019s remarks to Congress in his twice-yearly Monetary Policy Report this week were fairly cautious in tone.\u00a0 From a strategy standpoint, considering the improving economic conditions, further quant easing wasn\u2019t mentioned, but did note that labor conditions have improved at a rate somewhat \u2018more rapid than might have been expected.\u2019\u00a0 This might be significant, considering their cautious tone regarding labor as of late.<\/p>\n

The Fed\u2019s favorite price inflation metric, the personal consumption expenditure price deflator\/index (the \u2018PCE\u2019<\/strong>) was up +0.2% for January and +2.4% for the rolling twelve-month period.\u00a0 The core part of this index rose a similar +0.18%, which was a bit below the consensus guess of +0.20% (year-over-year, the rise was +1.9%).<\/p>\n

The February ISM Manufacturing Index<\/strong> number fell to 52.4, which was several points lower than expected, and was in contrast to several major manufacturing surveys that initially suggested there might be some improvement in this index for the month.\u00a0 New orders fell the most, as did the employment piece, but export orders have been up strongly (as they have for six months).\u00a0 Construction spending declined just slightly.<\/p>\n

 <\/p>\n

Durable goods<\/strong> orders for January slipped downward -4.0%, which was far below consensus expectations of a -1.0% drop, but the weakness was partially due to some unique seasonal factors.\u00a0 Core orders were more stable, as a drop in more volatile commercial aircraft orders wasn\u2019t included.\u00a0 It is interesting to note that a portion of this drop is likely due to a \u2018front loading\u2019 of orders in the last portion of 2011 to take advantage of changes in tax laws at year-end (regarding expensing of capital equipment)\u2014which may have artificially raised November\/December numbers and lowered January\u2019s.<\/p>\n

The Case-Shiller home price index<\/strong> fell by -0.5% on a seasonally-adjusted basis for the 20 cities covered in the survey (non-adjusted, they were down just over -1%).\u00a0 This was slightly more than expected, and resulted in a -4.0% decline for the trailing year.\u00a0 As usual, the trend was inconsistent from city to city, as Phoenix gained a percent, Florida experienced small gains, while Detroit fell by another -3.5%.<\/p>\n

The Conference Board\u2019s consumer confidence survey<\/strong> for February rose about 9 points to 70.8\u2014with increases occurring in both the expectations and current conditions components.\u00a0 The measure for labor market conditions and job availability was also higher.<\/p>\n

Personal income<\/strong> gained +0.3% for January, which was just a shade lower than forecast.\u00a0 Similarly, consumer spending <\/strong>was also up a bit less than expected, at +0.2%, versus a forecast +0.4%\u2014spending has remained relatively unchanged for the past several months (some of this is due to lower electricity and natural gas spending as a result of a warmer-than-average winter across much of the U.S.).<\/p>\n

Initial jobless claims<\/strong> were 351,000, which was close to consensus, while the more relevant four-week moving average fell to 354,000.\u00a0 Continuing claims were lower than consensus.\u00a0 The payroll number coming up this Friday will be closely watched, as usual.<\/p>\n

Market Notes <\/em><\/strong><\/p>\n\n\n\n\n\n\n\n\n\n
Period ending 3\/2\/2012<\/strong><\/td>\n\n

1 Week (%)<\/strong><\/p>\n<\/td>\n

\n

YTD (%)<\/strong><\/p>\n<\/td>\n<\/tr>\n

DJIA<\/td>\n\n

0.00<\/p>\n<\/td>\n

\n

6.76<\/p>\n<\/td>\n<\/tr>\n

S&P 500<\/td>\n\n

0.34<\/p>\n<\/td>\n

\n

9.33<\/p>\n<\/td>\n<\/tr>\n

Russell 2000<\/td>\n\n

-2.93<\/p>\n<\/td>\n

\n

8.48<\/p>\n<\/td>\n<\/tr>\n

MSCI-EAFE<\/td>\n\n

-0.66<\/p>\n<\/td>\n

\n

10.95<\/p>\n<\/td>\n<\/tr>\n

MSCI-EM<\/td>\n\n

1.16<\/p>\n<\/td>\n

\n

17.85<\/p>\n<\/td>\n<\/tr>\n

BarCap U.S. Aggregate<\/td>\n\n

0.19<\/p>\n<\/td>\n

\n

0.89<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n\n\n
U.S. Treasury Yields<\/strong><\/td>\n\n

3 Mo.<\/strong><\/p>\n<\/td>\n

\n

2 Yr.<\/strong><\/p>\n<\/td>\n

\n

5 Yr.<\/strong><\/p>\n<\/td>\n

\n

10 Yr.<\/strong><\/p>\n<\/td>\n

\n

30 Yr.<\/strong><\/p>\n<\/td>\n<\/tr>\n

12\/31\/2011<\/td>\n\n

0.02<\/p>\n<\/td>\n

\n

0.25<\/p>\n<\/td>\n

\n

0.83<\/p>\n<\/td>\n

\n

1.89<\/p>\n<\/td>\n

\n

2.89<\/p>\n<\/td>\n<\/tr>\n

2\/24\/2012<\/td>\n\n

0.10<\/p>\n<\/td>\n

\n

0.31<\/p>\n<\/td>\n

\n

0.89<\/p>\n<\/td>\n

\n

1.98<\/p>\n<\/td>\n

\n

3.10<\/p>\n<\/td>\n<\/tr>\n

3\/2\/2012<\/td>\n\n

0.07<\/p>\n<\/td>\n

\n

0.28<\/p>\n<\/td>\n

\n

0.84<\/p>\n<\/td>\n

\n

1.99<\/p>\n<\/td>\n

\n

3.11<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

For the week, large caps (other than the Dow) were generally up while small caps lost ground.\u00a0 From a sector standpoint, consumer discretionary and financials gained the most, while energy, telecom and industrials trailed.\u00a0 In foreign markets, emerging countries outperformed the developed group, as performance was mixed across a variety of countries and regions with no clear pattern.<\/p>\n

The Dow Jones Industrial Average finally surpassed its next milestone\u201413,000\u2014which it had been flirting with but hadn\u2019t touched since May 2008.\u00a0 These big round numbers tend to catch investors\u2019 attention for no better reason than they appear on the national news (where a big deal is made of it), and reminds investors about the fact that markets have indeed been recovering.\u00a0 Since that time, are things different?\u00a0 Yes, quite a bit.<\/p>\n

Company fundamentals are strongly better, with lower levels of debt and larger stashes of cash on the books.\u00a0 A good deal of corporate excess and waste have been peeled off, and operations now are about as productive as they\u2019ve ever been.\u00a0 What happens at that point, considering that firms eventually hit a limit of productivity improvements and cost-cutting that can be accomplished, is that hiring will eventually begin assuming the current pace of improvement in the economy continues.<\/p>\n

Bonds in the U.S. were up just slightly with intermediate-maturity investment grade debt lower in yield, while longer-term Treasuries were roughly flat.\u00a0 Corporates, including high yield, had an even better week.\u00a0 Emerging market bonds, however, outperformed domestic issues.\u00a0 On the European front, the International Swaps and Derivatives Association (\u2018ISDA\u2019) determined that the recent round of Greek debt restructuring did not constitute a \u2018default\u2019 under a definition that would trigger credit default swap payments.\u00a0 However, the estimated size of the Greek CDS market is about $2-4 billion, according to insiders, so even a trigger may not have been that damaging, considering how long the current situation has been priced into the market.<\/p>\n

Commodities on the week were led by strong recovery gains in natural gas and grains, as well as a good week in copper.<\/p>\n

Gasoline prices continue on an upward tear, and this has raised continued concerns over how this may affect consumer behavior and, ultimately, the economic recovery if high prices continue.\u00a0 High gas prices have historically been well-correlated with negative consumer sentiment, which is probably no surprise, considering how sensitive and aware most of us are to these prices on a daily basis.\u00a0 As with many technical measures, we are especially sensitive to certain round number price thresholds, such as $3.00\/gallon, $4.00\/gallon, etc.<\/p>\n

We\u2019ve moved dramatically up towards the $4.00\/gallon world in recent weeks (some states are already there), which may cast a negative tone on consumer sentiment.\u00a0 The good news (if you can call it that) is that we\u2019ve been here before (in mid-2008), so we\u2019re becoming increasingly desensitized to higher levels\u2014although many Americans just a few years ago had a hard time believing we\u2019d reach this \u2018European\u2019 level.\u00a0 More good news is that other indicators, such as a Dow near 13,000 act as positive contributors to sentiment and may partially offset the gasoline effect.<\/p>\n

Gasoline also tends to be seasonally affected, with increases common early in the calendar year, a flattening mid-year during the summer months, and a bit of a pullback in the fall.\u00a0 Per the chart below from Deutsche Bank, the magnitude this year\u2019s increase is not out of line with the adjusted long-term average.<\/p>\n

 <\/p>\n

Have a good week.<\/p>\n

Karl Schroeder, RFC, CSA, CEP<\/p>\n

Investment Advisor Representative<\/p>\n

Schroeder Financial Services, Inc.<\/p>\n

480-895-0611<\/p>\n

Sources:\u00a0 FocusPoint Solutions, Barclays Capital, Bloomberg, Deutsche Bank, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Reuters, Standard & Poor\u2019s, U.S. Federal Reserve, Wells Capital Management, Yahoo!.\u00a0 Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return\/excluding dividends.\u00a0 Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.<\/p>\n

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.\u00a0 All information and opinions expressed are subject to change without notice.\u00a0 Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.\u00a0 Schroeder Financial Services, Inc. is a registered investment advisor.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

The revised GDP number for the 4th Quarter 2011 as moved upward from an annualized 2.8% to 3.0%, which reflected better consumption and business investment\/capex spending.\u00a0 The one potential negative is, since inventory buildup played such a big role in last quarter\u2019s GDP, this quarter may not have the same effect as some of thatRead more<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[],"class_list":["post-752","post","type-post","status-publish","format-standard","hentry","category-finance"],"_links":{"self":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/752","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/comments?post=752"}],"version-history":[{"count":1,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/752\/revisions"}],"predecessor-version":[{"id":753,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/752\/revisions\/753"}],"wp:attachment":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/media?parent=752"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/categories?post=752"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/tags?post=752"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}